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Better than expected gets less than expected trade

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The major indexes have seen similar selling as that found early Monday, but this time the reversal of gains, which finds the Dow Industrials (INDU) 8,209 -0.14% lower by 13 points after sprinting to a session high of 8,337 comes on the heels of better than expected March retail sales and improving consumer sentiment in April.

The major indexes have seen a reversal of bullish fortune as traders sold stocks after the University of Michigan April sentiment (preliminary) rose to 83.2 from 77.6 in March. While April's rise in sentiment to 83.2 shows an improvement, March's final reading of 77.6 was the lowest reading since September 1993.

The University of Michigan current conditions index, which tracks consumers' attitudes about their present financial situation, rose to a preliminary reading of 94.8 in April from 90.0 in March. The expectations index, which gauges the 12-month outlook, increased to 75.7 from 69.6.

Current trade has the S&P 500 (SPX.X) 870 down 1.5 points after a session high of 883.34, the narrower S&P 100 (OEX.X) 442.25 off 0.50 after a morning high of 449 and NASDAQ-100 Index (NDX.X) 1,028 falling 4.7 points after a jump back above this WEEK's pivot of 1,048 at 1,051. The NASDAQ-100 Tracking Stock (AMEX:QQQ) $25.58 -0.73% falls 20 cents after trading as high as $26.16.

While equities have reversed all of their early morning gains, Treasuries have recouped roughly 1/2 of their morning losses, while still trading in the red. The 10-year Treasury June futures contract (ty03m) $114'070 -0.12% is now off just 4/32 with the benchmark bond's YIELD ($TNX.X) at 3.976%, after seeing a morning high YIELD of 4.03%.

I would still have to think, based on observation, that the current trade in the bond market helps put a floor of support under the major equity indexes here.

Technology sectors are showing rather mixed session currently Networking (NWX.X) 147 +1.65% and Internet (INX.X) 104.84 +1.35% showing gains, while marginal weakness is seen in Semiconductor (SOX.X) 300 -0.85% and Biotechnology (BTK.X) 0.64%.

The Gold/Silver Index (XAU.X) 65.74 -0.16% now trades with a fractional loss after falling to a morning low of 64.80, and has traded inverse from the major market indexes to this point.

I must say that as an equity index bull in recent weeks, I'm not liking these "sell into strength" type of trades we've seen this week. This morning, the S&P Banks Index (BIX.X) 273.94 -0.01% looked to confirm the stronger-than forecasted retail sales data and jumped to a session high of 277.94. While current trade is right back into our little "zone of support" I'm monitoring this level closely for intra-day support and think an equity bull would want to see this index hold these levels into the weekend. While this 273.89-273.99 zone was near-term resistance going into today's trade, I would think a more bullish outlook on the economy should find some buyers in this economically sensitive sector around these levels.

I do view the selling in Treasuries and at least the holding of selling as a positive for equities. This "selling into strength" begins to take on the look of some meaningful amounts of profit taking and most likely the "selling of good" news from bulls that were buying at the lows in mid-March. I still think it a potential error among bears to be overly aggressive at this point, with a possible exception being in technology areas, where I still think that a trickling down of capex spending will still be several quarters out.

Most actives at this hour have Microsoft (NASDAQ:MSFT) $24.20 -1.59% trading just over 31 million shares. First Albany downgraded the stock at the open of trade to "buy" from "strong buy" and cut their price target to $29 from $33, saying MSFT may have more trouble renewing maintenance contracts than originally thought, which could impact FY04 revenue growth rates.

Cisco Systems (NASDAQ:CSCO) $13.23 +1.45% is the second most actively traded stock as it attempts to reclaim its 200-day SMA of $13.18, but off its high of $13.54, which finds both the 21- day and 50-day SMA. Volume is currently just over 27 million shares.

Shares of Forest Labs (NYSE:FRX) $50.85 -2.7% are under pressure again today and perhaps today's news from Andrx Group (NYSE:ADRX) $14.73 +14.6% that is received approval to market a generic version of Tiazac, which is manufactured by Biovail (NYSE:BVF) $40.60 +1.24%, but marketed by Forest Labs, can now be offered under generic form. Andrx (ADRX) said it will market the generic version under the name of Taztia.

While I'm familiar with Forest Labs, and currently hold a bullish position in the October $55 calls, I'm not sure at this point what percentage of sales that Tiazac makes up for Forest Labs. I will try and get this information and post it in a later update or today's market monitor.

Jeff Bailey

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